 "Loaded trucks and good trains")
With the Goods and Services Tax (GST) in the offing, analysts expect that the easing out of various bottlenecks and complexities involved in the transportation of goods using road logistics would drive demand for heavy commercial vehicles (HCVs) in the long term.
According to the latest analysis by rating agency ICRA, one of the major benefits of GST is expected to be easing out of bottlenecks in road logistics from one state to another. Since the Central Sales Tax will be subsumed in GST, companies would no longer be required to have depots or warehouses at multiple locations and can also do away with clearing and forwarding (C&F) agents.
In the automobile industry, while original equipment manufacturers (OEMs) dispatch vehicles directly from their factories to dealers; in their spare parts business, the sales are routed through depots and C&F agents. With the implementation of GST, companies will be able to consolidate their warehousing infrastructure and benefit from lower costs incurred in supply chain. ICRA says, "As time spent at various check posts will reduce (with uniform transaction based taxation regime), the operating efficiency of road logistics sector is also expected to improve. This would mean better turnaround time for trucks (ie higher asset sweating)...."
Additionally, as industries will switch towards consolidating their warehousing infrastructure, the demand is expected to shift in favour of bigger trucks.
In ICRA's view, easing of bottlenecks in road logistics would not be materially negative for CV demand over the longer-term as lower logistics costs will help road sector to compete more effectively with the railways and secondly, efficiencies of road logistics sector are also contingent on the improvement of roads & highways sector, which at present limits ability of trucks to cover a maximum of 350-400 km per day in contrast to 700-800 km in developed nations.
The other general consensus is that the demand will shift in favour of bigger trucks and medium-segment vehicles, in the 9-16 tonne category, will get marginalised. The share of bigger trucks has gradually been increasing in India on the back of their superior economic cost and improving highway infrastructure.
In ICRA's view, while the implementation of GST will further support demand for bigger trucks, the shift would be gradual. This is because many applications and industries find medium commercial vehicles (MCVs) more viable vis-a-vis bigger trucks.
Unlike developed economies, the manufacturing and retail sector in India still remains highly fragmented, which means that their transportation needs are better met by either smaller vehicles (ie light commercial vehicles) or at best MCVs (ie 7.5-12 tonnes). Further, many of the 16-tonne trucks find application in construction sector as well. "As industry demand is unlikely to change rapidly, we believe MCV Trucks will continue to find acceptance and their share in the overall industry may reduce only marginally," ICRA said.
Sectors where MCVs are predominantly used:
- Perishable goods like dairy products, fruits & vegetables, foods grains etc
- Auto components (Typically ancillaries set-up their units either in the OEM's vendor park or in the near-by areas, allowing OEMs to optimise their working capital requirements, ie 'Just in Time' concept)
- Courier & re-location services
- Building/construction material (16-tonne vehicles are also used as tippers in the construction sector)
Source: ICRA Research
